INTERNAL AUDIT
INTERNAL AUDIT REPORT
LIMITED CONTRACT COMPLIANCE
ANTON AIRFOOD OF SEATTLE, INC.
APRIL 1, 2016 – MARCH 31, 2019
ISSUE DATE: JUNE 21, 2019
REPORT NO. 2019-07
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
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TABLE OF CONTENTS
EXECUTIVE SUMMARY ........................................................................................................................................... 3
BACKGROUND ........................................................................................................................................................ 4
AUDIT SCOPE AND METHODOLOGY ..................................................................................................................... 5
SCHEDULE OF FINDINGS AND RECOMMENDATIONS......................................................................................... 6
APPENDIX A: RISK RATINGS .................................................................................................................................. 8
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
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EXECUTIVE SUMMARY
Internal Audit (IA) completed an audit of the Seattle-Tacoma International Airport (Airport) Restaurant
Lease Agreement (Agreement) between Anton Airfood of Seattle, Inc. (Anton) and the Port of Seattle
(Port). Anton, which is managed by Host International, Inc. (Host), operated Anthony’s Restaurant and
Anthony’s Fish Bar in the airport’s central terminal. The lease expired March 31, 2019.
The period audited was April 1, 2016 through March 31, 2019. The audit was performed to determine
whether Anton complied with significant provisions of the Agreement including whether reported gross
revenues and percentage rent paid to the Port were complete and accurate.
Our audit identified the following two issues:
1. (High) - The Agreement requires the Lessee, in part, maintain records for a period of three years.
Anton did not provide a complete chart of accounts, the daily point of sales data, cash register z-tapes
and guest checks in its original format resulting in a scope limitation. Accordingly, Internal Audit was
unable to obtain sufficient and appropriate audit evidence to provide reasonable assurance of the
accuracy and completeness of concession revenue.
2. (Medium) - Anton did not report $42,022.90 in gross revenue in January 2019. According to Host, a
new item was added to the menu which prevented the daily sales data from uploading to the general
ledger. As a result, $5,420.46 in additional percentage fees is due to the Port.
The issues are discussed in more detail on page six.
We extend our appreciation to management and staff of the Aviation Commercial Management
Department and the Accounting and Financial Reporting Department for their assistance and
cooperation during the audit.
Glenn Fernandes, CPA
Director, Internal Audit
RESPONSIBLE MANAGEMENT TEAM
Dawn Hunter, Senior Manager, Airport Dining & Retail
Linda Nelson, Manager, Aviation Finance & Budget
Jim Schone, Director, Aviation Commercial Management
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
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Anton Airfood operated Anthony’s Restaurant and Anthony’s Fish Bar in the airport’s central terminal.
The lease expired March 31, 2019.
In March 2003, the Port entered into a Lease Agreement with Anton. The Agreement sets a fixed
Minimum Rent and requires additional Percentage Rent from gross sales of food and beverage, as
well as any other sales. The lessee contributes an amount of 0.5% of the monthly Gross Receipts
(capped at $24,000 per agreement year) as marketing fee to fund the Marketing Program.
Effective July 2015, concession fees were established at 8.0% of gross sales, up to the first $5 million
of annual gross sales, 10.0% between $5 million to $10 million and 12.0% above $10 million. The Port
and Lessee agree the first 7.0% of the Gross Receipts paid shall be Contract Rent for use of the
premise. Excise tax of 12.84% is calculated, based on the contract rent, and is added to the
concession fee.
The monthly concession fee is due on or before the fifteenth day of each succeeding month. For each
Agreement Year, an Annual Report of Gross Receipts for the preceding Agreement Year must be
certified by a Chief Financial Officer and/or Chief Executive Officer of the Lessee and submitted to the
Port within 60 days of each Agreement Year-end.
The table below reflects the total concession revenue reported to the Port during the audit period:
Year
Gross Revenue
Percentage Fees Paid
April 2016 – March 2017
$18,153,082
$2,065,530
April 2017 – March 2018
$19,342,935
$2,219,007
April 2018 – March 2019
$20,096,378
$2,316,192
Total
$57,592,395
$6,600,729
Source: AFR YE files, PeopleSoft, Anton’s certified revenue reports.
Percentage Fees Paid, in above table, are calculated based on agreement year.
BACKGROUND
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
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We conducted this audit in accordance with Generally Accepted Government Auditing Standards and
the International Standards for the Professional Practice of Internal Auditing. Those standards require
that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives. We believe the evidence
obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.
The period audited was April 2016 through March 2019. After identifying the significant provisions in
the Agreement, we performed the following audit procedures:
Revenue Completeness, Accuracy, Timeliness
• Reconciled all revenues reported to the Port, to the Lessee’s general ledger, and to revenue
reports certified by Anton’s CFO.
• Reviewed the Certified Statement of Gross Revenues for compliance with timely and complete
submission requirements.
• Verified timeliness of payments for all months in the audit period.
AUDIT SCOPE AND METHODOLOGY
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
6
SCHEDULE OF FINDINGS AND RECOMMENDATIONS
The Agreement requires the Lessee, in part, maintain records for a period of three years. Anton
did not provide a complete chart of accounts, the daily point of sale data, cash register z-tapes
and guest checks in its original format resulting in a scope limitation. Accordingly, Internal
Audit was unable to obtain sufficient and appropriate audit evidence to provide reasonable
assurance of the accuracy and completeness of concession revenue.
Section 7 of the Agreement reflects the “Lessee shall retain all accounting records, including cash
register tapes and guest checks, for not less than (3) years after the close of the applicable
Agreement Year or until the close of any ongoing audit thereof being conducted by, or on behalf of, the
Port, whichever shall last occur.”
Anton did not provide a complete chart of accounts nor retain original receipt data to evidence their
daily sales. Excel reports that display information, although unlikely, can be manipulated. Data can be
inadvertently removed, thus compromising the completeness and accuracy of the report. Relying on
reports that capture information downloaded from another source, therefore, does not provide the
same level of assurance as does obtaining data in its original form (i.e. guest checks).
We escalated the issue to Host’s Vice President of Business Development who appreciated our
position and requested Host’s accounting team provide a PDF document hoping it would illustrate that
it couldn’t be modified. However, like excel downloads, these documents could also be modified,
simply be right clicking and selecting “Edit Text & Images.”
This position is also consistent with the Internal Revenue Service record retention guidance which
requires cash register z-tapes and detailed z-tapes to perform their examinations.
As a result, Internal Audit was unable to trace source data (i.e. guest checks) to revenue that had
been reported to the Port during the scope period. We were also unable to validate, other than verbal
descriptions provided by Host, check numbers that were missing from a sequential listing.
Recommendations:
Management should proactively communicate contractual lease requirements with concessionaires
and periodically review concessionaire documentation to ensure lease and revenue compliance.
Management Response/Action Plan
Management agrees with this finding. Airport Dining and Retail staff continues to work with Host and
Internal Audit staff to resolve this specific issue and will emphasize to all ADR tenants, the need to
maintain accounting records for three (3) years so as to avoid this problem in the future.
1) RATING: HIGH
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
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Anton did not report $42,022.90 in gross revenue in January 2019. According to Host, a new
item was added to the menu which prevented the daily sales data from uploading to the general
ledger. As a result, $5,420.46 in additional percentage fees is due to the Port.
Host initially communicated that the error had been identified and corrected in February 2019 and as a
result, no additional monies were owed. Host also indicated that they would provide supporting
documentation to evidence the correction, however no documentation was provided.
In the absence of supporting documentation, Internal Audit analyzed the daily sales for February 2019
and did not identify any dates showing a significant increase in revenue.
As a result, we engaged the Port’s Airport Dining and Retail Management team and Host’s, Vice
President of Business Development. We again asked for the documentation which they indicated they
would provide. Subsequent to the meeting, Host communicated that the error had not been corrected
and agreed that the additional monies were due.
The table below reflects the calculation of the $5,420 owed:
Period (2019)
Concession fees
(12%)
Excise Tax*
Percentage Fees due
January
$5,042
$378
$5,420
Data Source: PeopleSoft Financials, Peoplesoft Financials, and Anton records.
* Excise tax of 12.84% is calculated based on contract rent, which is the first 7% of Gross Receipts.
Recommendations:
1. Seek and recover $5,420.46 in underpaid Percentage Fees.
2. Assess the applicability of a one-time late charge and any accrued interest.
Management Response/Action Plan:
Management was unaware of the problem affecting the daily sales data uploading to the general
ledger until this audit. ADR staff will request that an invoice be sent to Host for the monies owed
including interest and late fees. Also, ADR staff will implement a system requiring all ADR tenants to
provide formal documentation of such problems in the future at the time of occurrence in the form of a
certified letter to the ADR Senior Manager detailing such discrepancies for inclusion in the
correspondence file.
2) RATING: MEDIUM
Anton Airfood of Seattle, Inc.
April 2016 – March 2019
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APPENDIX A: RISK RATINGS
Findings identified during the course of the audit are assigned a risk rating, as outlined in the table below.
The risk rating is based on the financial, operational, compliance or reputational impact the issue identified
has on the Port. Items deemed “Low Risk” will be considered “Exit Items” and will not be brought to the final
report.
Rating Financial Internal Controls Compliance Public
Port Commission/
Management
HIGH
Large financial
impact
Remiss in
responsibilities
of being a
custodian of
public trust
Missing, or inadequate
key internal controls
Noncompliance
with applicable
Federal, State,
and Local Laws,
or Port Policies
High probability
for external audit
issues and/or
negative public
perception
Important
Requires immediate
attention
MEDIUM
Moderate
financial impact
Partial controls
Not adequate to identify
noncompliance or
misappropriation timely
Inconsistent
compliance with
Federal, State,
and Local Laws,
or Port Policies
Potential for
external audit
issues and/or
negative public
perception
Relatively important
May or may not
require immediate
attention
LOW/
Exit Items
Low financial
impact
Internal controls in place
but not consistently
efficient or effective
Implementing/enhancing
controls could prevent
future problems
Generally,
complies with
Federal, State and
Local Laws or Port
Policies, but some
minor
discrepancies
exist
Low probability
for external audit
issues and/or
negative public
perception
Lower significance
May not require
immediate attention
Efficiency
Opportunity
An efficiency opportunity is where controls are functioning as intended; however, a modification would make
the process more efficient